Assoc. Prof. Dr.
Md Asrul Nasid
Masrom
BPD 20302
CONSTRUCTION LAW
Sem 2/2021/2022
+
BPD 20302
CONSTRUCTION
LAW
PM Dr. Md Asrul Nasid Masrom
Arbitration
+
DISPUTE IN CONSTRUCTION
PROJECTS
+
Definition of Arbitration
The placing of a dispute before a third party to
obtain a fair or equitable decision, based on
discretion rather than on fixed rules.
As a process, subject to statutory controls
whereby formal disputes are determined finally
by a private tribunal of the parties own choosing.
The basic principle of arbitration is that the
parties to a contract from which a dispute arises
elect to appoint a tribunal of their own choice to
determine the dispute.
It is especially relevant where in construction,
technicalities are involved.
+
Definition of Arbitration
Arbitration is a voluntary procedure, available as
an alternative to litigation (lawsuit/trial).
It is not enforceable as a means of settling
disputes except where the parties have entered
into an arbitration agreement.
An arbitrator is a private extraordinary judge
between party and party, chosen by their mutual
consent to determine controversies between them.
He has an arbitrary power: for if he observe the
submission and keep within the law, his sentences
are definite from which they lies no appeal.
+
Definition of Arbitrator
The limited grounds upon which an appeal may
lie only cover points of law, including failure by
the arbitrator to conduct himself or the
proceedings with the law.
An arbitrator derives his powers from the
arbitration agreement between the parties and
from the Arbitration Act 2005.
Providedthat the agreement is valid and that he
has been properly appointed, the Act give him
the basic powers needed to conduct the
proceedings and to make an enforceable award.
The arbitrator‟s authority is irrevocable
(binding/irreversible/final) except by leave of
the High Court.
+
Qualification of the Arbitrator
1. He must not have any interest in or relationship
with either party such as might impair his
impartiality.
2. He must not be a friend or relative of either party.
3. He must not have any prior knowledge of the
subject matter of the dispute.
4. He must not have a financial interest in either
party e.g as a shareholder or as a consultant.
5. If he has a distant relationship by blood or
marriage with one party, he will have to disclose
it to the other party. He must not have any
interest in or relationship with either.
+ Qualification of Arbitrator
6.The arbitrator should have a general knowledge of
the technicalities of the matters in dispute.
7.He should have judicial capacity where he is able
to consider and weigh the evidence presented by
the parties and reach a logical decision based upon
matters of fact and to make a just award.
8.He is the judge both of fact and law and should
therefore have a basic knowledge of the law of
contract and of tort, together with a sufficient
knowledge of the law of evidence to enable him to
give just rulings upon the admissibility of the
evidence presented.
9.He can take legal advice if the dispute involved
points of law and the cost is part of the cost of the
award.
+
Types of Arbitration Method
1. Ad-Hoc Arbitration
2. Institutional Arbitration
3. Statutory Arbitration
4. Look-Sniff Arbitration
5. Flip-Flop Arbitration
6. Domestic and International Arbitration
7. Documents-Only Arbitration
8. Written Representations Plus Short Oral Hearing
+ Ad-Hoc Arbitration
Refers to arbitration where the parties and the arbitrator will
conduct the arbitration according to procedures which will
either be agreed by the parties or, in default of agreement,
laid down by the arbitrator at a preliminary meeting once the
arbitration has begun
“ad hoc arbitration” or “ad hoc submission” is used in two
different senses; i) an agreement to refer an existing dispute,
and/or ii) an agreement to refer either future or existing
disputes to arbitration with an arbitral institution specified to
administer the proceedings or without any procedural rules
specified
the ad hoc arbitration may be stipulated either in the
“submission agreement” or in the arbitration clause provided
it broadly establishes the arbitral tribunal, venue of
arbitration, the governing law and procedural or arbitration
rules
ad hoc arbitration is an arbitration agreed to and arranged by
the parties themselves without assistance from or recourse to
an arbitral institution
the parties can agree to adopt the rules framed by a
particular arbitral institution without submitting its disputes to
such institution
+
Institutional Arbitration
Institutional arbitration is an arbitration administered by an
arbitral institution
the parties may stipulate, in the arbitration agreement, to
refer a dispute between them for resolution to a particular
institution, for example, the Regional Centre for Arbitration
Kuala Lumpur (KLRCA) or Singapore International Arbitration
Centre (SIAC) or Hong Kong International Arbitration Centre
(HKIAC)
although institutional arbitration may be more expensive,
they provide procedural framework, specialised expertise
and services.
the advantage is that the parties under an institutional
arbitration have available to them a well-tried and tested set
of arbitral rules, which provide for the various factual
situations which may arise in arbitration
the institutions have panels of experienced arbitrators
specialising in various areas like construction, contract,trade,
commodity and etc available to them
+
Ad-Hoc Arbitration
it may encompass domestic or international commercial
arbitration
the advantage is that it may be designed according to the
requirements of the parties particularly where the stakes are
large or where a state or Government agency is involved
the parties are in a position to devise a procedure fair and
suitable to both sides by adopting or adapting to suitable
arbitration rules.
the disadvantage is that it depends for its full effectiveness
upon the spirit of co-operation between the parties and their
lawyers backed up an adequate legal system in the place of
arbitration, which may not necessarily exist.
the arbitral proceedings can be easily delayed by the refusal
by either party to appoint an arbitrator, or raising a challenge
to either the jurisdiction or impartiality of the arbitral
tribunal
in such a situation, the provisions of the arbitration law
become crucial in terms of offering necessary support.
+
Institutional Arbitration
there is a mechanism in the rules to challenge and,if
necessary, remove arbitrators
the institutional arbitration rules are normally set out in a
booklet
parties who agree to submit their dispute to arbitration in
accordance with those rules effectively incorporate those
rules into the arbitration agreement
the disadvantage is costs as the institution will charge an
administrative fee on top of fees payable to the arbitral
tribunal
there is a possible delay that arises from having a layer of
institutional administration of the arbitration
+
Statutory Arbitration
Statutory arbitration is a creature of statute
it arises where the reference to arbitration derives from an
enactment of Parliament other than the Arbitration Act 2005
the source of the arbitration is not an agreement of the
parties (the arbitration agreement) but a section of a
particular Act of Parliament
the court has no jurisdiction to try the dispute where a statute
requires that certain disputes be settled by arbitration and
only the arbitrator appointed under the statute can decide on
the dispute
a statutory arbitrator‟s powers are circumscribed by the statute
he has implied power to do things as are reasonably
incidental to and may properly be done to achieve the main
purpose of deciding the dispute
+
Statutory Arbitration
if the statutory arbitrator is a public authority, the court may
interfere with its award by issuing writs of prohibition and
certiorari
the prerogative writs cannot be issued to a private arbitrator
acting under an arbitration agreement
the statutes which provide for a particular class of disputes or
differences to be referred to arbitration include the Trade
Unions Act 1959(262) Pt VI ss 44-46, the Workmen’s
Compensation Act 1952 (Act 273)Pt III ss 27-41, the Co-
operative Societies Act 1993 (Act 502)s 82 (3)(b) and the
Companies Act 1965 s 270 (2 )
the procedure for a statutory arbitration will derive from the
statute giving rise to that particular arbitration or from the
Arbitration Act 2005
a statutory arbitrator if he is to deal with matters not
compulsorily referred, then the parties will have to agree to
appoint him as arbitrator under the Arbitration Act 2005
+
Statutory Arbitration
if all the matters were dealt with at the same time, he has
to make two awards, one under the Arbitration Act 2005
and the other under the statute.
the awards have to be distinguished in that it should be
clear as to which award is made under which Act and
failure to do so may make the award invalid under either
Act.
+
Look-Sniff Arbitration
“look-sniff arbitration” “quality arbitration” is a
combination of the arbitral process and expert opinion
the parties select the arbitrator on the basis of his
specialized knowledge, expertise and experience in a
particular area of business or trade
the parties will disclose to the arbitrator the relevant
documents setting out the required specification and may
show him the agreed sample
if necessary, the arbitrator arranges to take inspection of
the goods or commodities, which are the subject matter of
the dispute
such inspection may be even in the absence of the parties
there are no formal hearings for the taking of evidence or
hearing oral submissions
the arbitrator is looking or sniffing, using his own
experience and knowledge, and coming to an award based
on evidence placed before him and gathered by him
the arbitrator has a wide discretion to find the necessary
relevant evidence and information
+
Flip-Flop Arbitration
“flip-flop arbitration” is also known as “pendulum arbitration”
and is used only in quantum disputes
this method is based on the assumption that parties being
businessmen would approach their dispute in a pragmatic
manner and should be encouraged to be reasonable and
realistic in the formulation of their cases
the parties in flip-flop arbitration formulate their respective
cases beforehand
the arbitrator is then invited to choose one of the two but not
in between the two
if one party over claims or puts up an unreasonable defense,
the probability of the arbitrator choosing his formulation
would be next to zero
another variant of “flip-flop arbitration” is where the arbitrator
himself decides a figure for a final settlement, regardless of
what the parties have put forward
it may fall between the two rival figures put forth by the
parties
+ Domestic andInternational
Arbitration
the terms “domestic” and “international” arbitrations are defined
in the Arbitration Act 2005
a domestic arbitration would mean an arbitration in which the
arbitral proceedings are held in Malaysia and in accordance with
Malaysian substantive and procedural law and the cause of
action for the dispute has wholly arisen in Malaysia or where the
parties are subject to Malaysian jurisdiction
an international arbitration means an arbitration where :-
(a)one of the parties to an arbitration agreement, at the time of
the conclusion of that agreement, has its place of business in any
State other than Malaysia;
(b)one of the following is situated in any State other than
Malaysia in which the parties have their places of business :
-the place of arbitration if determined in, or pursuant to, the
arbitration agreement;
- any place where a substantial part of the obligations of any
commercial or other relationship is to be performed or the
place with which the subject-matter of the dispute is most
closely connected;or
+ Domestic andInternational
Arbitration
(c) the parties have expressly agreed that the subject-matter of the
arbitration agreement is related to more than one State/Country
International arbitration is commercial if it relates to disputes arising out of a
legal relationship, whether contractual or not, considered as commercial under
Malaysian Law.
Domestic Arbitrations which in the local context are undertaken in Malaysia if:
(a)the parties have at the time of conclusion of the arbitration agreement, their
places of business in Malaysia,or
(b)the parties have expressly agreed that the arbitration agreement would be
settled in Malaysia under the laws of Malaysia.
In respect of a domestic arbitration, where the seat/place of arbitration is in
Malaysia:
Parts I,II and IV of the Arbitration Act 2005 shall apply; and
Part III of the Arbitration Act 2005 shall apply unless the parties agree
otherwise in writing
+ Domestic andInternational
Arbitration
(c) the parties have expressly agreed that the subject-matter of the
arbitration agreement is related to more than one State/Country
International arbitration is commercial if it relates to disputes arising out of a
legal relationship, whether contractual or not, considered as commercial under
Malaysian Law.
In respect of a domestic arbitration, where the seat/place of arbitration is in
Malaysia:
Parts I,II and IV of the Arbitration Act 2005 shall apply; and
Part III of the Arbitration Act 2005 shall apply unless the parties agree
otherwise in writing
In respect of an international arbitration, where the seat of arbitration is in
Malaysia:-
Parts I,II and IV of the Arbitration Act 2005 shall apply; and
Part III of the Arbitration Act 2005 shall apply unless the parties agree
otherwise in writing
The parties to a domestic arbitration may agree to exclude the application of
Part III of the Arbitration Act 2005 and the parties to an international
arbitration may agree to apply Part III of this Act, in whole or in part.
+
Documents-Only Arbitration
This type of arbitration proceeds on the basis of
exchange of written documents
To be effective, reasonable time periods for each
milestone of the procedure must be laid down and all
parties including the arbitrator must ensure that such
deadlines are met as far as practicable.
The parties deliver written submissions and supporting
documents in turn to the arbitrator.
The written submissions may simply take the form of a
letter to the arbitrator from the parties or his
representatives, or may be a more formal document
produced by lawyers.
On completion of the written submissions, the arbitrator
proceeds immediately to write his award on the basis of
the submissions and documents in his possession.
The arbitrator may write to the parties to seek
clarification if he needs them.
+
Documents-Only Arbitration
the arbitrator will make his decision without further
reference to the parties
the disadvantage is that the document-only arbitration
may not work in disputes where there are conflicts of facts
as the arbitrator does not have the benefit of observing a
witness cross-examined
+
Documents-Only Arbitration
Synonymous with the term „Procedure Without hearing‟,
it exhibits the following procedural characteristics:
The arbitration involves no hearing whatsoever;
The parties submit to the arbitrator and the other party
written submissions comprising:
(a) Written statements;
(b) Documentary evidences;
(c) Other relevant records,information.
The arbitrator may carry out an inspection of the works,
if necessary;
The arbitrator may seek clarification from either or
both parties on any matter pertaining to the
submissions by an interview or by other means as
appropriate;and
The arbitrator the makes a decision and publishes his
award
+
Written Representations Plus Short
Oral Hearing
The instant type of arbitration involves the following
principal procedural steps:
The parties expressly agree to adopt the procedure in
question following an application and a preliminary
meeting;
Each party to the arbitration:
(a) Set out the respective case in writing and
(b) Submits it to the arbitrator and to the other party.
The submission must be supplemented with the relevant
copies of all documents/ evidence relied upon.
Upon receipt, the arbitrator then proceeds to study the
written submission;
If necessary the arbitrator may:
(a) Inspect the site;and/or
(b) Require further clarifications/information from either
or both parties;
+
Written Representations Plus Short
Oral Hearing
The arbitrator then convenes a discretionary or mandatory
meeting where:
(a) The parties may make oral submissions;and
(b) The arbitrator may question the parties and/or their
witnesses;
The arbitrator the makes his decision and publishes his
award.
There is a necessity to fix time frames for the various
parties to adhere to in terms of actions and/or
deliverables.
The emphasis should be on making the oral hearing and
submissions as concise as possible to avoid the need to
prolong the overall procedure.
As the bulk of the proceedings hinge upon the written
submissions and the documentary evidence relied upon,
these should be handled with due skill and diligence;
preferably involving the input of the relevant specialists
eg.lawyer,legal draftspersons,etc.
+ Differences between Arbitration
and Litigation
No Arbitration Litigation
The settlement of disputes The process of resolving a legal
before a private judge of the dispute before a court.
parties choosing.
1. Private Hearing Proceeding generally public
2. Award private unless appeal Judgment reported
to High Court successful
3. Arbitrator of particular Judge allocated
expertise can be chosen
(judge-arbitrators)
4. Venue can be agreed Restricted
5. Dates and time of hearing Court decides
flexible with agreement
+ Differences between Arbitration
and Litigation
No Arbitration Litigation
6. Can be less formal Formal
arbitrator master of own - Traditional attire
procedure
control by courts - Court procedures
7. Appeals restricted: Subject to rules of the court
-jurisdiction (Sect.43)
- serious irregularity (Sect.30)
- point of law (Sect.41)
8. Less suitable for multi-party Totally suitable for multi-party
disputes
disputes
9. Loser pays costs of arbitrator Provided by the state
and venue
10. Lawyers optional Rights of audience restricted
11. Calderbank/ Payment into court
sealed offers
+ Differences between Arbitration
and Litigation
No Arbitration Litigation
12. Security for costs according at Court‟sdiscretion to precedents
arbitrator‟s discretion (Sect.
44)
13. Less easy to deal with Court‟s order
reluctant party (Sect. 27)
14. Can be quicker/ cheaper Less flexible
15. Choice of hearing (Sect. 26) Oral hearing
oral
experts
documents
16. View or other demonstration At judge‟s discretion
can be included in agreement
+ Differences between Arbitration
and Litigation
No Arbitration Litigation
17. Litigation brought in defiance Litigation cannot be stopped
of arbitration unless abuse of process etc.
agreement can be stopped
18. Legal aid not available Legal aid available subject to
eligibility
+ Malaysian Arbitration
(Amendment) (No 2) Act 2018:
Removal of writing requirement
This amendment removes the positive and evidentiary
writing requirement and seeks to address advances in
communication technology. An agreement to arbitrate may
be entered into in any form (including orally) as long as the
contents of the agreement are recorded. There is no longer
any requirement for the signature of parties or an
exchange of message between the parties.
Source:https://www.lh-ag.com/wp-content/uploads/2018/06/4_Malaysian-Arbitration-
Amendment-No-2-Act-2018-A-Practical-Commentary-by-Crystal-Wong-Wai-Chin.pdf
+ Application of Arbitration
Arbitration is suitable as an effective dispute resolution
mechanism in some defined applications which include the
following principal areas:
Where the parties strongly desire confidentially of proceedings
and a lack of any publicity whatsoever ie the use of a private as
opposed to a public forum (where confidentiality and lack of
publicity desired);
In situations where the parties have convenience and flexibility in
arranging and carrying out their dispute resolution as a
paramount criteria (where need for convenience and flexibility is
important);
Where the issues are predominantly technically and factually
complex rather than of a legal complexity i.e. it requires the
services of a technical specialist who is their peer instead of a
legal expert (where issues are of technical and factual complexity
only and not predominantly legal);
+ Application of Arbitration
Arbitration is suitable as an effective dispute resolution
mechanism in some defined applications which include the
following principal areas:
In simple disputes involving merely the construction of
documents, etc. Where it desired to save both costs and time
whilst achieving the desired results (where cost and time savings
desired in simple disputes);
Where there is a preference for using „lay advocates‟ in lieu of full
fledged advocates and solicitors in the conduct of the
proceedings akin to litigation (where „lay advocates‟ preferred in
litigation-like procedure);
In international arbitrations where there is no neutral
international court for the settlement of private disputes and
where for such arbitrations, the award could be enforced in any
one of the 120 countries which are parties
+ Application of Arbitration
Arbitration is suitable as an effective dispute resolution
mechanism in some defined applications which include the
following principal areas:
Where the parties prefer, for the sake of their continued business
relationship, a less confrontational forum for dispute resolution
compared to litigation whilst having the benefits of the latter
(where for continued business relationships, a less confrontational
dispute resolution forum desired).
+
